Academic journal article The McKinsey Quarterly

Innovation's Uncertain Terrain

Academic journal article The McKinsey Quarterly

Innovation's Uncertain Terrain

Article excerpt

Why Marconi needed Sarnoff

Our remarkable inability to see the future

Even pioneers lack vision. Railroads were developed to feed canals

Understanding uncertainty may help us place better bets on new technologies

Few would disagree that technological change is a major ingredient of long-term economic growth, or that it is beset by a high degree of uncertainty. Understanding the nature of this uncertainty and the obstacles to surmounting it is not a trivial matter. It goes to the heart of how new technologies are devised, how rapidly and far they spread, and how they affect economic performance.

The deep uncertainty associated with innovation makes it hardly surprising that innovating firms have historically experienced high failure rates. Indeed, the vast majority of attempts at innovation fail. But this is only part of the story. A more intriguing field of enquiry might be the apparently widespread inability to anticipate the future impact of successful innovations, even after their technical feasibility has been established.

Uncertainty has a number of peculiar properties that shape the innovation process and hence the way in which technological change exercises its effects on the economy. In considering what has determined the trajectory of new technologies, I propose to focus on those that have made a powerful impact. A study that included unsuccessful as well as successful innovations might yield insights of a very different nature.

It is easy to assume that uncertainties disappear after the first commercial introduction of a new technology. Indeed, by this point some uncertainties will have faded. However, after a new technological capability has been established, the questions change, and new uncertainties, especially those of an economic nature, begin to assert themselves.

Historical perspectives

Consider the laser, one of the most powerful and versatile technological advances this century. In the 30 years since its invention, its range of uses has been breathtaking. Lasers allow the reproduction of music in compact disc players, and of text via laser printers. They are widely used for precision cutting in the textile, metallurgy, and composite materials industries. The laser has become the instrument of choice in many surgical procedures, including eye, gynecological, and gall bladder surgery.

Perhaps the most profound impact of the laser has been in telecommunications where, in combination with fiber optics, it is revolutionizing transmission. In 1966, the best transatlantic telephone cable could carry only 138 conversations simultaneously. The first fiber-optic cable, installed in 1988, could carry 40,000. Those installed in the early 1990s can carry nearly 1.5 million.(*) Yet despite what turned out to be a striking record of success, the patent lawyers at Bell Labs were initially unwilling to apply for a patent for the laser, believing it could have no relevance to the telephone industry.

Many other case histories illustrate what now seems a remarkable inability to foresee the uses to which new technologies would soon be put. The inventor of the radio, Marconi, thought it would mainly be used between two points where communication by wire was impossible, as in ship-to-ship or ship-to-shore communication. He envisaged the users of his invention as steamship companies, newspapers, and navies needing to transmit private messages over long distances. The idea of communicating to a large audience of listeners rather than to a single point seems never to have occurred to the pioneers of radio.

This failure of social imagination was widespread. One man, later to become a leader of the broadcasting industry, announced that it was hard to see what uses public broadcasting could serve. His sole suggestion was the transmission of Sunday sermons - the only occasion where one man regularly addressed a mass public. …

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